Highlights of
Report Number: 2007-40-131 to the
Internal Revenue Service Commissioner forWage and
Investment Division.

IMPACT ON TAXPAYERS

The Customer Account Data
Engine (CADE) is a new computer system designed to house the tax account
information for taxpayers.The Release
2.1 version of the CADE generally posted accurate tax return information to
taxpayer accounts.It is essential that the
information posted to the CADE accurately reflects taxpayers’ tax return
information because inaccurate information could affect subsequent activities
or adjustments to taxpayer accounts.

WHY TIGTA DID THE AUDIT

This
audit was initiated because the CADE is a critical building block in the Internal
Revenue Service’s (IRS) modernization program that will enable the development
of subsequent modernized systems to improve customer service and
compliance.The CADE is designed to post
information to taxpayers’ accounts on a daily rather than weekly basis, which
will facilitate faster refunds to taxpayers and allow IRS employees to provide
improved service to taxpayers because the employees will have up-to-date,
accurate account information available.

CADE Release
2.1 began posting returns in September 2006 and contained significant
additional functionality over prior releases.The objective of the audit was to determine whether CADE Release 2.1
accurately posted tax return information, focusing on functionality not
included in prior releases.

WHAT
TIGTA FOUND

Tax return information was accepted and generally
posted accurately to CADE accounts.In
addition, name and address changes were posted accurately, and a condition
related to long addresses being cut off that TIGTA had previously reported was
corrected.Finally, the process used to
determine the audit potential of returns posting to the CADE was adequately
tested.

TIGTA did
identify programming problems affecting the accurate posting of Itemized
Deductions, Adjusted Gross Income, and Taxable Income amounts.Itemized deduction amounts were inflated when
posted to the taxpayers’ accounts.TIGTA
reported this issue to the IRS and it immediately corrected the problem.There were 109 returns posted with inflated
amounts before the condition was corrected.

In some
circumstances, incorrect Adjusted Gross Income and/or Taxable Income amounts
were posted to taxpayers’ accounts.When
a return is corrected during processing, the corrected figures should be posted
to the account; however, the CADE posted the original, uncorrected values.TIGTA reported this issue to the IRS and it
promptly corrected the programming in February 2007.Returns posted after this date were posted
with accurate information.The IRS
subsequently corrected the approximately 49,000 returns posted to the CADE with
erroneous Adjusted Gross Income amounts and approximately 71,000 returns posted
with erroneous Taxable Income amounts.

These problems
did not materially affect tax administration.Before the tax returns were posted to the CADE, the processing of the
tax returns had already been completed using the correct information;
therefore, the Itemized Deduction, Adjusted Gross Income, and Taxable Income
amounts did not affect the taxes due or refund amounts.However, because the CADE is meant to be the
repository of tax information, it must accurately reflect the information from
tax returns.

WHAT TIGTA RECOMMENDED

TIGTA
made no recommendations in this report because IRS management took appropriate
corrective actions to our findings during the course of the audit.

READ THE
FULL REPORT

To view the report,
including the scope, methodology, and full IRS response, go to: